US Airways, bankrupt American look hard at a merger; result would be world's largest airline

An American Airlines employee helps passengers check in at a ticket counter at Dallas-Fort Worth International Airport in this file photograph. A possible merger of American's parent company, AMR Corp., with US Airways gained support late last month from an ad hoc group holding $1.5 billion in unsecured AMR debt, sources said then.Associated Press

US Airways Group Inc.'s merger talks with bankrupt American Airlines are intensifying as the sides try to agree on control of a combined company before confidentiality accords expire next week, people familiar with the matter said.

No decisions have been made on how ownership would be split between creditors of American parent AMR Corp. and US Airways investors or who would lead the carrier, said four of the people, who asked not to be identified because the discussions are private.

A deal would create the world's largest airline, vaulting it past the rivals that eclipsed American amid a consolidation wave during the past decade. A combined carrier would be valued at almost $13.1 billion, according to Dan McKenzie, a Buckingham Research Group Inc. analyst in New York.

"The merger solves US Airways' international network problem and creates a better combined entity," James Corridore, a Standard & Poor's equity analyst, said in a note to investors Thursday.

The possible merger gained support late last month from an ad hoc group holding $1.5 billion in unsecured AMR debt, people familiar with the matter said then.

The bondholders are pushing for a deal by Feb. 15, the expiration date for nondisclosure agreements they signed with the two airlines. Talks may still falter, and there is no guarantee of a merger announcement by then, the people said.

Equity split

Besides giving those investors access to proprietary information, the accords restrict them from trading in AMR or US Airways debt.

Ed Stewart, a spokesman for Tempe, Ariz.-based US Airways, declined to comment about the deliberations, as did Sean Collins, a spokesman for American.

AMR has urged that creditors get 80 percent of the equity in a merged airline versus 20 percent for US Airways shareholders, while US Airways favors a 70 percent to 30 percent division, people familiar with the matter have said.

Still unresolved is the role American Chief Executive Officer Tom Horton would play after a merger, the people said. US Airways' merger proposal calls for CEO Doug Parker to hold that position as well as chairman at the combined airline.

AMR's board is pushing for Horton to have an active role to represent American's interests and help ensure that $1.2 billion in annual savings and incremental sales promised by US Airways materializes, one of the people said. Horton became CEO after AMR filed for bankruptcy on Nov. 29, 2011.

Vaulting to the top

"We would prefer US Airways management to remain in control," said Corridore, who recommends buying US Airways.

If merger terms are agreed upon and approved by the bankruptcy court, the deal would be proposed as the reorganization plan to bring AMR out of Chapter 11 protection. A combination of US Airways, the fifth-biggest U.S. carrier, and No. 3 American would surpass United Continental Holdings Inc. to become the world's largest airline, based on passenger traffic.

"Hopefully very soon we'll have a chance to influence and work with a new management team, one that will provide the leadership we all want and need to guide American Airlines back to the top of the industry," Keith Wilson, president of the Allied Pilots Association at American, told members in a message late Wednesday.

US Airways earlier said it would keep the American name for a combined carrier and its Fort Worth, Texas, headquarters.

Parker's pursuit

Parker has been pursuing American since January 2012. Horton agreed to consider merger options in restructuring after saying the airline preferred to exit court protection and then weigh consolidation.

US Airways' stock has more than tripled since the day before AMR's Chapter 11 filing, amid speculation that Parker would succeed, compared with a 27 percent advance by the Standard & Poor's 500 Index. The shares rose 3.8 percent to $15.11 in trading Thursday in New York.

AMR's $460 million of 6.25 percent convertible notes due in October 2014 have soared more than fivefold during its time in bankruptcy.

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